Hedge Funds Are Betting on These Five Cheap Tech Stocks

Stock market watchers have surely noticed that the start of 2016 has been unkind to the technology sector. Signs of weakening economic conditions and breathers in business spending were bad news for most technology firms, which have triggered the cruel correction in early 2016 that might have created new attractive entry points for investors. Although the brutal correction might have resulted in lower valuations for most technology companies, that does not necessarily mean tech companies boast dirt-cheap valuations. Insider Monkey compiled a list of five low-priced tech stocks favored by the hedge funds tracked by our team. These low-priced stocks, most of which have share prices below $10, may have a low price tag relative to other players in the technology sector, but that does not mean they are extremely undervalued by Mr. Market. That said, let’s have a look at the most loved low-priced technology stocks within the hedge fund industry.

At Insider Monkey, we track around 760 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).

#5. Himax Technologies Inc. (ADR) (NASDAQ:HIMX)

– Investors with long positions as of March 31: 27

– Aggregate value of investors’ holdings as of March 31: $161.86 Million

The hedge fund sentiment towards Himax Technologies Inc. (ADR) (NASDAQ:HIMX) increased considerably during the first quarter of 2016, as the number of funds from our system with stakes in the company rose to 27 from 17 quarter-over-quarter. Similarly, the aggregate value of those stakes climbed to $161.86 million from $111.69 during the three-month period. Those 27 asset managers amassed nearly 14% of the Taiwan-headquartered company’s outstanding shares. The fabless semiconductor solution provider has seen its market value advance 13% since the beginning of 2016 even though Himax’s ADSs plummeted following the release of the company’s seemingly strong first-quarter earnings report in early May. The huge drop forced the company to issue a separate statement in the subsequent days reiterating confidence in the positive outlook for both top- and bottom-line growth in 2016. Himax Technologies is particularly enthusiastic about the business prospects in its Augmented Reality and Virtual Reality segments. Columbus Circle Investors, managed by Clifford G. Fox, acquired a new stake of 1.88 million shares of Himax Technologies Inc. (ADR) (NASDAQ:HIMX) during the first quarter of 2016.

#4. ON Semiconductor Corp (NASDAQ:ON)

– Investors with long positions as of March 31: 28

– Aggregate value of investors’ holdings as of March 31: $348.54 Million

ON Semiconductor Corp (NASDAQ:ON) fell out of favor with the hedge funds tracked by Insider Monkey during the March quarter, as the number of money managers with long positions in the company dropped to 28 from 34 quarter-over-quarter. Correspondingly, the overall value of those positions shrunk to $348.54 million from $406.54 million during the quarter. Approximately 9% of the company’s total number of outstanding shares were stockpiled by the 28 bullish hedge fund vehicles. The shares of the semiconductor manufacturer are down 4% thus far in 2016. In mid-November, ON Semiconductor agreed to acquire fellow chip company Fairchild Semiconductor Intl Inc. (NASDAQ:FCS) in an all-cash deal valued at $2.4 billion. The acquirer has already obtained the financing for the imminent acquisition, as well as received approvals from regulators in Germany and Japan. The Fairchild transaction, subject to regulatory approvals in the United States and China, is anticipated to close in the middle of the year. Richard S. Pzena’s Pzena Investment Management upped its stake in ON Semiconductor Corp (NASDAQ:ON) by 17% during the March quarter to 13.03 million shares.

#3. Marvell Technology Group Ltd. (NASDAQ:MRVL)

– Investors with long positions as of March 31: 31

– Aggregate value of investors’ holdings as of March 31: $661.11 Million

Marvell Technology Group Ltd. (NASDAQ:MRVL) received some love from the small-sized “Insider Monkey” hedge fund industry during the first three months of 2016, with the number of funds invested in the company increasing to 31 from 25 quarter-on-quarter. The aggregate value of hedge funds’ equity investments in Marvell increased to $661.11 million from $416.72 million quarter-over-quarter. The 31 funds invested in the Silicon Valley chip maker accumulated roughly 12% of the company’s shares on March 31. In late April, the U.S. chipmaker appointed three directors backed by Jeffrey Smith’s Starboard Value LP, as well as an additional independent director, in the face of accounting issues and other problems. In early March, the company’s Audit Committee identified problems with the “tone at the top”, including significant pressure on sales and finance personnel to meet revenue targets. These issues resulted in the departure of Marvell’s longtime leaders, so the company is currently searching for a new leader to replace former CEO Sehat Suturdja. Marvell shares are 13% in the green year-to-date. Starboard Value LP owns 20.40 million shares of Marvell Technology Group Ltd. (NASDAQ:MRVL) as of March 31.

#2. Oclaro Inc. (NASDAQ:OCLR)

– Investors with long positions as of March 31: 33

– Aggregate value of investors’ holdings as of March 31: $149.32 Million

The smart money sentiment towards Oclaro Inc. (NASDAQ:OCLR) rose spectacularly during the January-to-March period, as the number of assets managers from our system with equity investments in Oclaro spiked to 33 from 19 quarter-over-quarter. The overall value of those equity investments nearly doubled quarter-over-quarter, increasing to $149.32 million from a mere $75.74 million recorded at the end of December. The 33 hedge fund vehicles hoarded up almost 25% of the company’s outstanding shares. The fiber-optic component supplier’s shares have advanced 26% since the beginning of the year. The company’s revenues for the nine months that ended March 26 were $282.73 million, up $23.6 million relative to the same period of the prior year. The increase was mainly driven by higher sales of Oclaro’s 100 Gb/s transmission modules, partially offset by lower sales of the company’s 40 Gb/s and lower transmission modules that are gradually replaced by newer products. Leon Shaulov’s Maplelane Capital added a 2.70 million-share position in Oclaro Inc. (NASDAQ:OCLR) to its pool of holdings during the first quarter of 2016.

#1. Brocade Communications Systems Inc. (NASDAQ:BRCD)

– Investors with long positions as of March 31: 36

– Aggregate value of investors’ holdings as of March 31: $503.12 Million

There were 36 hedge funds from our database with long positions in Brocade Communications Systems Inc. (NASDAQ:BRCD) at the end of the March quarter, as compared to 29 recorded at the end of the December quarter. Nonetheless, the aggregate value of those hedge fund positions dropped to $503.12 million from $514.56 million quarter-over-quarter. Roughly 12% of the company’s outstanding shares were owned by the 36 hedge funds tracked by Insider Monkey invested in Brocade. In early April, the supplier of networking hardware, software and services announced it had agreed to acquire pioneer in wireless infrastructure Ruckus Wireless Inc. (NYSE:RKUS) in a cash-and-stock deal valued at $1.5 billion. The transaction, set to enhance Brocade’s competitive position in the enterprise networking and service provider markets, is anticipated to close in the company’s third quarter of fiscal 2016 that ends July 31. At closing, Ruckus shareholders will receive $6.45 in cash and 0.75 shares of Brocade for each Ruckus share. Royce & Associates, founded by Chuck Royce, owns 6.32 million shares of Brocade Communications Systems Inc. (NASDAQ:BRCD) as of the end of March.

Disclosure: None